Larry Summers warns of “Financial Armageddon”

July 20, 2011, 5:55 AM UTC

He may not be President Obama’s top economic adviser anymore, but Larry Summers still has plenty of strong opinions on the economy—and some strong words for the President’s Republican rivals in Congress.

Speaking at Fortune’s Brainstorm Tech conference in Aspen, Colo., the former Treasury Secretary and head of the National Economic Council repeated his recent warnings that failing to raise the debt ceiling would be tantamount to “financial Armageddon” and called brinksmanship on the part of Republicans “outrageous” and “profoundly irresponsible.”

“The idea that adults who have some agenda, whatever the merits of their agenda, are really prepared to threaten sending the United States into default to pursue their agenda is beyond belief,” said Summers.

Summers called the new proposals by the bipartisan “Gang of Six” senators to resolve the crisis “encouraging” but said that they need fleshing out and that right now they amount to “more a plan to have a plan rather than a plan.” Summers said that, despite all the posturing, the two sides would reach an agreement by the Aug. 2 deadline.

The biggest problem the country has right now is not the budget deficit, said Summers, but the “jobs deficit.” Failing to make progress on the issue could imperil a recovery. “We’ve been flying out of the recession but we’ve been flying out of it dangerously close to stall speed and that should be our top priority,” he said.

We need to embrace the fact that many of our future jobs will be created in service sectors like health care and education rather than manufacturing, said Summers.

Summers, who recently joined the board of hot mobile payments company Square and signed on as a special adviser to venture capital firm Andreesen Horowitz, spoke glowingly about the tech industry. “I cannot see a sector of the economy that is not being transformed by what information technology is making possible,” he said.

When asked by Aspen Institute president Walter Isaacson whether tech valuations represented a new bubble, Summers was equivocal. “You’re not going to get me to be dismissive of the idea of a bubble,” said Summers, quipping that the four most dangerous words in markets are: “This time it’s different.”

But Summers said price/earnings valuations for technology companies relative to all industrial companies are at a low point. With the whole world connected and companies earning real money, Summers said, those valuations might well be solid. “It’s a little facile to assume that just because the numbers are big that it’s a bubble,” he said.

Summers drew laughs when he was asked whether he was accurately portrayed in a scene from the movie The Social Network, which depicted the creation of Facebook. In the scene, the now famous Winklevoss twins, who had hired fellow Harvard student Mark Zuckerburg to help them create a website, go to then Harvard president Summers to complain that Zuckerburg has stolen their idea—only to be resoundingly put down by Summers.

“I’ve heard it said that I could be arrogant,” replied Summers. “If that’s true, then I certainly was on that occasion.”

“One of the things that you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday at 3 pm, there are two possibilities: One is that they’re looking for a job and they have an interview; the other is that they’re an asshole,” said Summers about the visit from the twins. “This was the latter case. Rarely have I encountered such swagger, and I tried to respond in kind.”

Read the full transcript here and watch the video here:

[cnnmoney-iframe src=]